Should I keep my TOMS transport company post-Brexit?
posted 25th June 2021
One question we have been asked many times this year by tour operators is whether their TOMS transport company should remain in place for travel post-Brexit. Well, you've guessed it - the answer is "it depends". TOMS transport companies have been hugely advantageous for many tour operators over the years because they effectively ensure that no VAT is paid on the margin made on UK or EU transport. However, post Brexit, does this still give the same benefit?
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What is a TOMS transport company
I explain the benefits and set-up of TOMS transport companies in more detail here. In brief, pre-Brexit, the margin made on all UK and EU travel services under TOMS was subject to the standard rate. To combat this for passenger transport which would ordinarily be zero rated under UK rules, HMRC agreed the use of the Transport Company Scheme back in the 1990s, and it remains in place to this day. This scheme allows UK businesses to set up a separate company to purchase passenger transport from providers and sell on to the main tour operator, and capture the full margin of the transport within this transport company. As the wholesale supply between the two companies is zero rated, and the tour operator sells the transport at no margin, there is no VAT to pay. The workings of the scheme are a bit more complex than this, so please do take advice if you are planning to use a transport company. However, the basic gist is that the scheme allows UK businesses to treat most forms of passenger transport as VAT free under TOMS.
Many tour operators selling UK and EU transport under TOMS have saved vast amounts of VAT over the years by using this arrangement and this will still be a great benefit to some post-Brexit.
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What's changed?
On 1 January 2021, the UK left the EU and with it the EU TOMS rules we know and love. We now have a new UK TOMS system which is, usefully, almost identical to the EU version. However, there is one important difference - post-Brexit, the TOMS margin made on UK travel only is subject to the standard rate of VAT . The margin made on EU and other non-EU travel is now zero rated for UK VAT purposes. We have provided some more detailed guidance on the current TOMS position here
This means that no UK VAT is payable on the TOMS margin made on EU transport regardless of whether a transport company is in place. For businesses which do not sell, nor intend to sell, any UK travel, this means that the transport company may now be superfluous. As the transport company itself has some running costs (for e.g. ATOL licences, accounts fees, etc.) this may mean that it becomes a cost rather than a benefit.
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Should I keep my TOMS transport company?
If you sell no UK travel at all, and don't plan to, I would advise that you consider winding the transport company up. Please do ensure that this is done fully and properly - i.e. that all contracts, other documents and accounting reflect this change, and take advice if you are not sure.
For those selling UK travel, we have been hoping that HMRC will accept that UK-based transport can be treated as zero rated within the main UK TOMS calculation. This has not yet been agreed so I would advise UK businesses selling UK transport under TOMS to apply caution for the time being. With this in mind, the TOMS transport company scheme may still be very useful if you:
- Sell travel taking place solely within the UK; or
- Sell travel which takes place partly in the UK.
If your UK travel is minimal, this may be a judgement call - for example, if your main business is EU travel but you occasionally sell a UK holiday and so have a few minor costs of UK coaches, rail or domestic flights only, keeping the transport company may still be more of a cost than a benefit. However, for businesses with UK transport costs of more than £10-15k, the transport company would usually remain beneficial overall. As such, you should review this for your own business circumstances.
Please note that the EU VAT position for EU travel is remains uncertain and I would still advise all tour operators selling EU travel to keep updated on this and assess the future risks for your business. You can read further on this point here. However, importantly, if EU registrations are required later down the line, having a transport company will not alleviate this. In fact, arguably, a transport company would be a disadvantage here in that both companies would be required to register in the member state in question.
Please contact me on 07971 642789 and laura@vatnav.com if you have any questions or would like to discuss your own transport company.